Academic journal article SAM Advanced Management Journal

Strategic Alliances and the Management of Intellectual Properties: The Art of the Contract

Academic journal article SAM Advanced Management Journal

Strategic Alliances and the Management of Intellectual Properties: The Art of the Contract

Article excerpt

Patents, trade secrets, copyrights, and trademarks often compose as much as 85% of a corporation's economic value. Because product lifecycles have shortened as technology advances ever more rapidly, businesses frequently look to partnerships, joint-ventures, and other alliances to speed development of intellectual properties. But such arrangements should be entered into carefully with extensive due diligence. Court cases underscore the importance of having valid nondisclosure and noncompete agreements prior to exchanging proprietary information.


Intellectual properties (IPs) have been identified as comprising approximately 85% of the overall economic value of a corporation (Smith and Parr, 2000). As represented by patents, trade secrets, copyrights, and trademarks, IPs constitutes a strategic resource that can assist organizations in the development of core competencies and sustainable competitive advantage (Mason, 2003; Fitzpatrick and DiLullo, 2004). Models of knowledge management have documented the evolutionary manner in which organizations have developed and strategically exploited IPs. During much of the last century, IP development was often the province of large vertically integrated firms. Vertical integration permitted many firms to capitalize upon their extensive resources, exploit value chain control/synergies, and utilize government enforced patent-trade-mark-copyright laws to develop, market, and protect intellectual properties (Chesbrough, 2004; Fitzpatrick and DiLullo, 2004). However, the strategic viability of these vertically integrated models of IP management began to decline due to the combined effects of reverse engineering and the rapid erosion of product and technology life cycles (Cringley and Sen, 1996). Organizations have responded by introducing new models of IP management that rely on the extensive use of strategic alliances and partnerships to facilitate the more rapid creation and commercialization of intellectual properties (Johnston and Lawrence, 1988; Rackham, Freidman and Ruff, 1996; Chesbrough, 2004; Fitzpatrick and DiLullo, 2004).

Despite these advantages, IP-based strategic alliances and partnerships are subject to a number of control, security, and anti-trust issues arising from interorganizational sharing, development, ownership, and exploitation of intellectual properties (Anthony, 2000; Saunders, 2003; Boni, 1999; Fitzpatrick and Burke, 2003). This paper discusses these knowledge management issues and their mitigation through effective partner screening, contracting, and partnership administration activities. A model highlighting these activities and their relevance for managing IPs across organizational boundaries is also presented.

Establishing IP-Based Organizational Alliances

Types of IP-based strategic alliances and partnerships

Outsourcing/subcontracting, R &D teaming and R & D joint ventures are popular methodologies that permit partnering organizations to harness, exchange, or synergistically develop IPs to achieve competitive objectives (Dickerson, 1998; Grover, 1995; Rackham et al, 1996). The firm initiating these partnering methodologies is often classified as a HUB organization (Dickerson, 1998; Fitzpatrick and DiLullo, 2004). HUBs seek out subcontractors or other business partners to secure access to strategic capabilities they lack. To manage these partnering relationships, HUBs assume the responsibility for developing all the administrative infrastructures needed to coordinate the exchanges of IPs among members of their partner cadre (Dickerson, 1998; Fitzpatrick and Burke, 2000).

When engaged in outsourcing, HUBs transfer their IPs to partners with the expectation that cadre members will utilize their own unique capabilities to refine, produce, distribute, or market the transformed IP (Buono, 1997). IP transfers to R & D teams are generally implemented when HUBs wish to use the capabilities of the partner cadre to develop new products or technologies based upon proprietary knowledge contained in IPs contributed by the HUB. …

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